Are Economically Significant Stock Returns and Trading Volumes Driven by Firm-specific News Releases?

This paper explores whether firm-specific information events drive economically relevant positive and negative stock price changes and trading volume and, if so, the nature of such information. We find that no less than 65% of significant price changes and trading volume movements in our sample of FTSE 350 companies can be readily explained by public domain information contradicting the thesis that corporate news is not a primary driver, and that share price changes and trading volume activity are driven by factors unrelated to information flows per se. In addition, we find that a parsimonious set of news categories represent the key drivers. Sell-side analyst stock recommendations and earnings forecast revisions as a class, unaccompanied by other news releases, dominate all other news categories in terms of significant market reaction. However, taking into account the "relative" magnitude of market response to different news releases, firms' formal accounting disclosures dominate within this domain. As such, we conclude these are not fully anticipated by apparently more timely market disclosures, and that the existence of news services and the activities of the sell-side analyst are not substitutes for a firm's interim and preliminary results. Copyright Blackwell Publishers Ltd, 2004.